Fleet Management

Economic Watch: Retail Sales Drop on Cold Weather, Weak Income Growth

Retail sales in the U.S. have fallen for a second straight month according to new U.S. Commerce Department figures.

The 0.4% decline follows a downwardly revised 0.1% drop in December from a 0.2% gain. The performance was less than many economist were expecting.

The January decline was led by a 2.1% falloff in auto sales, the second straight drop. When sales of autos along with gasoline, building materials are removed, the January sales level was virtually unchanged from December.

Compared to a year ago, January’s retail sales level is 2.6% higher.

“A weak consumer report suggesting consumers continued to lose momentum at the start of the new year. Of course arctic winter temperatures certainly played a role here, dissuading consumers from going out and shopping but retail spending has been loosing momentum since an outsized monthly gain in October suggesting not all of the weakness can be explained away because of unfavorable weather conditions,” said Lindsey Piegza, chief economist with the investment firm Sterne Agee.

She said in the long run positive spending patterns can only be supported by underlying growth in jobs and income.

“We have seen the quantity of jobs continue to increase, although at a disappointing pace as of late- however, we have not seen quality job creation leading to income growth, as the vast majority of the jobs created have been in part-time or low wage sectors,” said Piegza.

She points out consumers were able to spend through the fourth quarter thanks in part to temporary factors like energy price reprieve and a lingering wealth effect from rising equity markets luring consumers out to spend and draw down their savings.

“Going forward, with rising energy prices expected to cost the average consumer an extra $500-$1,000 more this winter season to heat their home and fill up the family car, without income growth, consumption will remain under pressure,” Piegza said.